​The Small Business Blog

As many of our readers are aware, the SBA proposed regulatory changes last year which purport to make it more difficult for individuals to gain entry into the SBA's 8(a) Business Development program if the individual is not a member of one of the "presumed groups." Specifically, these changes were proposed in response to a number of SBA Office of Hearings and Appeals cases which the SBA felt allowed individuals to establish social disadvantage despite having (in their opinion) a record which lacked sufficient evidence supporting a discriminatory basis for such misconduct. As of today, the SBA has not yet issued a Final Rule (it is anticipated by the end of this month); however, we were surprised to learn (based on an application we are working on) that the SBA has already implemented these changes with respect to the processing of 8(a) applications.

To summarize, the following are the major points of the regulatory change (based on the Proposed Rule):

*An individual claiming social disadvantage must present facts and evidence that by themselves establish that the individual has suffered social disadvantage that has negatively impacted his/her entry into or advancement in the business world.

Each instance of alleged discriminatory conduct must be accompanied by a negative impact on the individual's entry into or advancement in the business world in order for it to constitute an instance of social disadvantage.

SBA may disregard a claim of social disadvantage where a legitimate alternative ground for an adverse employment action or other perceived adverse action exists and the individual has not presented evidence that would render his/her claim any ore likely than the alternative ground.

While we agree that there must be some mechanism for determining whether an individual not in one of the presumed groups has in fact been disadvantaged in entry to or advancement in the business world, we are concerned that the changes will have the effect of not only making it more difficult for individuals generally to gain entry into the program, but will actually result in excluding individuals that truly have been disadvantaged in their business and careers. As was noted in many of the comments to the Proposed Rule, this change places a lot of discretion in the hands of the application processing specialists.

In addition, it is unrealistic to expect individuals to have the type of evidence that would substantiate a disadvantage claim under the new standard. SBA states that they will give most weight to things like sworn affidavits or statements from independent third parties who do not have an interest or close relationship to the owner (statements from relatives/friends of the owner will carry less weight) or documentary evidence such as personnel records, payroll records, rejection letters, contemporaneous records of meetings/conversations, and documents setting forth company policy(ies) which are alleged to be discriminatory.

The reality is that companies are more savvy than in the past and they certainly aren't going to document any discrimination. In addition, applicants will likely have difficulty securing sworn statements or affidavits from prior co-workers, particularly when the prior co-worker still works for the company at issue.

In conclusion, individuals who are not members of one of the presumed groups should think twice about going through the application process unless they are certain they can provide sworn statements or other written documentation which will: (1) support that they faced disadvantage; (2) establish that each instance of discriminatory conduct had a negative impact on their entry into or advancement in the business world; and (3) establish that there was no other non-discriminatory or legitimate ground for the adverse employment action.

If you have any questions about the changes to the requirements for establishing social disadvantage, please contact us at: info@holomuaconsulting.com or (808) 369-9710.